Be careful about relying on non-competition covenants

People often ask me about the value of non-competition covenants when they are thinking of hiring staff, especially salespeople. You don’t want someone working for you and then jumping ship to go work for themselves, or for a competitor.

Non-competition covenants have always been popular in employment agreements. But these covenants can be difficult to enforce unless their scope is reasonable. After all, people need to be able to earn a living.

Sometimes, people confuse non-solicitation agreements and non-competition agreements. A non-solicitation agreement merely restricts a former employee from being able to directly solicit your clients and they are, generally, easier to enforce than non-competition agreements.

A recent Court of Appeal case (H.L. Staebler Company Limited v. Allan) reaffirms the difficulty of enforcing overly broad non-competition covenants when a non-solicitation covenant would have been adequate to protect the employer’s interests. Non-competition covenants will only be enforced in “exceptional circumstances” provided they are reasonable with respect to geography, time, and the nature of activities which are restricted. In this case, H.L. Staebler restricted two of its former employees from conducting any business with any existing clients of the company for 2 years following the end of their employment. The court found these terms to be unreasonable and unenforceable.